Credit Card Debt in Ireland: Is a Consolidation Loan Cheaper Than Paying the Minimum?

Credit Card Debt in Ireland: Is a Consolidation Loan Cheaper Than Paying the Minimum?

For many Irish people, a credit card debt consolidation loan is cheaper than paying only the minimum. This is because personal loans generally involve a lower interest rate than credit cards. In addition, loans have a fixed loan term.

However, a personal loan is not always cheaper. It largely depends on your card APR, the APR of a loan, the loan duration and any additional charges.

Reasons why paying only the minimum on a credit card is so expensive

Financial institutions have designed credit card minimum payments to maintain your account in good standing. They are not meant to clear your balance instantly. Most of the minimum payment goes towards interest. Therefore, the balance falls gradually.

Here is how the minimum payment usually processes:

• Credit card interest in Ireland is typically around 20% APR or may be higher
• Once your balance reduces, the minimum payment also reduces. Therefore, the debt keeps continuing
• New purchases will be added to the balance, and slow progress goes ahead
• There is no fixed end date, so several individuals stay in debt for years

The outcome is that you can end up repaying more than you originally spent.

What is a credit card debt consolidation loan?

A credit card debt consolidation loan is typically a kind of personal loan in Ireland. With that, you use it to pay off one or more credit card balances. This means you then pay back a single loan in place of multiple cards.

Here are the key features:

• One monthly payment instead of many due dates
• A fixed repayment term to keep you on a debt-free date
• A fixed or reducing interest cost depending on the lender
• A clear repayment amount makes budgeting convenient

This is what debt consolidation loans are all about, i.e., merging several costly debts into one structured one.

How does it work to pay off a credit card with a personal loan?

The process is generally simple to pay off a credit card with a personal loan.

• List your credit card balances

Prepare the list of balances, APR and minimum payment on each card.

• Analyse your total amount

Add the total card payments that you owe and share it with the lender.

• Apply for a loan

Submit the online loan application to the lender’s website to get the amount needed.

• Use the funds to pay off the card balances

Some lenders pay you or pay the card providers directly.

• Loan repayment

You now start the repayment of the loan in fixed monthly instalments over the scheduled term.

Do you want to consolidate credit card debt in Ireland? Check whether the Central Bank of Ireland regulates the lender before you apply.

Which costs less: An example to consider

The following is an illustration using the example figures. Individual card payments will differ.

Situation: €5,000 credit card balance with around 21% APR

The result:

• The loan costs around €1,600 to €1,900 less in interest, according to the example.
• A longer loan duration lowers the monthly payment. However, it increases total interest.
• Paying only the actual minimum (a percentage of the balance) would usually take longer than the €150 example and be more expensive

These are illustrative figures only and not the final quote. The actual rates depend on the lender and your financial circumstances.

When is a consolidation loan inexpensive than paying the minimum?

A consolidation loan is most likely to save you money in several situations. For example:

• Your credit card APR is visibly higher than the loan APR
• Fixed monthly repayment is affordable without any stress
• You choose a term that is necessarily shorter
• You stop adding new spending to those cards that you are clearing
• Your chosen loan should not have expensive arrangement or admin fees

When might a consolidation loan can be expensive?

Consolidating debt is an effective tool, but it is not always the best one. You need to be careful if:

• The loan APR is almost similar to your card APR.
• The loan term is very long, and consequently, it has a higher total cost.
• Fees related to arrangement or processing are included that reduce your savings.
• Your balances are small, and you are about to pay them off. In such a situation, you should avoid taking a loan.
• You keep using your cards and end up with a loan and new debt.

What should you assess before choosing a loan?

The headline rate is not the final one. Therefore, you should compare:

• Annual Percentage Rate (APR) to check the total annual cost of borrowing.
• Total amount to repay across the whole term.
• Monthly repayment should fit conveniently into your budget.
• Any arrangement or late-payment charges.
• Check whether you can make a prepayment without any charges.
• You should be aware that you are approaching an authorised lender in Ireland.

A lower monthly payment is not the definition of a cheaper loan. You should always compare the total borrowing cost.

How can you make consolidation work in your favour?

Consolidating credit card debt helps if you change your habits of managing the debt. Here are some valuable suggestions:

• Remove spare cards if you are willing to spend on them
• Set up a direct debit facility to avoid missing any loan payment
• Build a small emergency fund to pay unexpected bills, not from the card
• Pay a slightly extra amount if possible to end the loan early
• Keep reviewing your budget every month and adjust accordingly

Who is a debt consolidation loan best suited to?

A loan to consolidate debt suits people who:

• Have more than two cards with balances
• Are paying high interest and feel financial strain
• Have a steady income and a practical budget
• Want one predictable payment with a clear end date

Have you already missed payments or struggled to cover essential expenses? You can consider free guidance from the Money Advice and Budgeting Service (MABS).

Final thoughts: Is consolidating right for you?

Paying only the minimum keeps your debts for a longer time. They usually cost you the most. For many Irish people, consolidating credit card debt in Ireland with a lower-rate personal loan is a wise decision. It helps cut the total interest paid and gives a clear duration to be debt-free.

You need to focus on these things to make the right choice:

• Loan rates
• Your overall budget
• The total cost of the loan

Therefore, compare the loans at Givemyloan with their total repayable amount. Borrow carefully and for an amount that is affordable. Check the terms before proceeding with a loan.

Some frequently asked questions to discuss

Will applying for a debt consolidation loan affect my credit report?

Every loan application usually leaves a mark on your credit report. Lenders usually see them before finalising a deal. You need to make repayments on time to have a positive entry on your credit record.

Can I get a consolidation loan if my credit history is not good?

Yes, some Irish lenders consider applications from people with a poor credit history. However, there will be high-interest rate loans. There is no guaranteed approval. It largely depends on individual income, financial commitments and the lender’s criteria.

Should I close my credit cards after paying them off?

It is not necessary. It is your personal choice whether to close a card. Many people in Ireland keep one card open for emergencies and do not use the others.

Is a 0% balance transfer a better option than a loan?

Balance transfer options are less popular in Ireland. Any introductory rate you see can be temporary only. Check the offer’s term, fees and the rate that applies after your confirmation. Always compare it with the loan.

Can I consolidate other debts along with my credit cards?

Some lenders allow you to take in other unsecured debts. These can be store cards or small loans. Analyse any early settlement charges on the debts you want to clear them first.

Ava Nolan

Ava is Editor-in-Chief at Givemyloan and is known for her deep and practical approach to modern personal finance. She has written several articles covering topics like personal loans, business loans, etc. Coming from an economics and finance background, she has worked behind the scenes to curate informative content to help borrowers identify the right loan option.
Ava’s role at Givemyloan lets her combine her interest in writing with her curiosity to explore the finance realm. She likes to be updated about what is happening in the lending industry. Most importantly, she tries to instil her knowledge in her writing in the best way possible.

She is passionate about helping borrowers look beyond the general features of a loan, i.e. about the fees and other intricate details. When she is not writing, she likes to read contemporary fiction. She is on a mission to help educate people looking for loans so that they take the right route.